UNRAVELLING your lives and especially your finances when it comes to divorce, is a daunting task, especially when it comes to pensions and property.
As Lisa Whiting, a Wealth Adviser at Fidelity, says: “Not only are you emotionally trying to come to terms with a significant and often distressing event, but there are also important financial implications to consider. Primarily, this concerns the division of assets between two separating spouses. This could include your home, cash savings, investments and often overlooked pensions.
As anyone who has gone through, or is going through divorce knows, it is an emotionally and financially fraught time for all those involved, however recent research carried out by Fidelity International shows that it is women who are most financially exposed when it comes to divorce and separation.
Women aged between 55 and 64 are most likely to be financially vulnerable in the event of a break-up (42%), according to research by Fidelity International. But they are not alone. Some 41% of 35-44-year olds and 40% of those aged 45-54 years old also admitted that they would be financially unstable if their relationship ended tomorrow.1
Being financially ‘in the know’ is key. So, getting advice is an essential first step when it comes to getting divorced.
As Lisa advises: The first priority is to secure legal representation, to complete the divorce process, agree on the division of assets etc. Once this is complete, the next stage is to catch your breath. “This can be a difficult process and your decision-making could be emotionally compromised. If so, this is not the time to be making long-term financial planning decisions. You are going to need to evolve your thinking from “we” to “me” both on an emotional and on a practical level. For some, this change can be empowering, as this may be the first opportunity for you to think about what you want. For others, this can be daunting and sometimes feel overwhelming.
“Once you feel ready to move forward and consider your financial future, you should engage a financial adviser.”
Getting to grips with your joint finances is essential. In the midst of anything but the most amicable marriage breakdown, being able to ascertain what you own and what you could be entitled to, will be much easier if you have all the paperwork at your fingertips so you have a sound overview of what you both have as early as possible. That will put you in a stronger position and enable you to know what you need from the financial separation. You’ll find that having all the facts and figures at your fingertips will prove invaluable, whether you are able to negotiate with your estranged spouse, or matters end up going to court.
Lisa says: “Tracking down all assets (especially if either spouse has kept certain aspects of their wealth separate, which is common), getting up-to-date valuations and then agreeing on how to divide these fairly and in what manner, can be a complex discussion, even if the parties involved are on amicable terms. Most people tend to hire a solicitor who is a specialist in divorce and is emotionally impartial. They can negotiate an agreement on the division of assets.”
There are three key areas that women need to take special care of as soon as divorce becomes a reality:
1. Check your pension
Pensions are a crucial part of your future financial security. But too many people focus on the family home and neglect to see what share of the pensions they could be entitled to on divorce.
Lisa says: “When it comes to any accumulated pension pots, there will be a number of choices available to both parties, which can include “buying out” the other party using other assets, such as cash, to keep the pension intact. For example, if Mr Jones has £400,000 in a pension, he could either give half of this to his ex-spouse or, give an additional £200,000 in cash (if he has it) and keep his pension intact. Again, a specialist solicitor will be able to guide their client through the options and agree on the correct solution.”
Don’t forget to check your state pension entitlement too.
Questions to answer before negotiating a divorce settlement
- When are you likely to want to retire?
- What is the earliest date that you can take the pension?
- What lump sum and/or income will you each be able to get from your existing pensions in retirement?
- How much do you need/what is your expected cost of living?
- Are there any other savings that you have that can be used to meet your retirement needs?
2. Review your savings and investments
Unravelling the various savings and investments you both hold can be tricky. It’s rarely as simple as just dividing them equally.
Lisa says: “The first step is to speak with a financial adviser. We will review your current situation carefully and explore what you are looking to achieve. Many clients find this conversation an incredibly useful way to start to move forward and gain some insight into themselves, what they want and often they feel relieved to start the process of bringing some order to what can feel like financial chaos.
“An adviser will take you through it step by step, explaining everything along the way, at a pace you are comfortable with. This will include a review of your income, assets (such as property, cash, pensions and investments) and your aims.
“Once we have a clear understanding of your position and future aims, we will be in a position to put together a number of recommendations to meet your objectives. We will then talk you through these carefully and agree on a way forward together.”
3. Change your Will
As soon as you start seriously considering divorce you should update your Will to ensure your wishes are made clear. You don’t need to wait for the decree absolute which ends your marriage. It’s a very good idea though to also write a “letter of wishes” that sits alongside your Will and makes clear what you want to happen in your current circumstances.
Divorce itself does not automatically make your Will void, invalid or revoked. What happens instead is that the decree absolute makes it as though your former spouse had died on the date the decree was issued.
If you had previously left everything to your ex-spouse, leaving your Will un-updated after divorce is the equivalent of dying intestate. That’s because any gifts made to a former spouse will become ineffective and fall back into residue for the benefit of your other beneficiaries. It would then be left to your executor - or whoever was appointed in place of your former spouse if they were named as executor in your Will - to work out who should get what.
By making the changes yourself you can ensure that your wishes are carried out.
As Lisa says: “Your finances will have radically altered during this process, including your income and expenditure. You may have received a large capital sum as part of the asset division and/or rights to a part of your ex-spouse’s pension.
“It doesn’t end there, as your adviser can continue to support you for the rest of your life, with on-going reviews and discussions to make sure the solutions we put in place for you will meet your needs.”
1 Teamspirit/Fidelity International, Couples Finances, May 2019